Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 128

Appeal P05-00009

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Appellant

and

JOSEPH ROVELLA

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

Angela S. James for State Farm

Joseph Rovella on his own behalf

HEARING DATE:

September 6, 2005

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The matter is remitted to the arbitrator to specify the interest rate and the date upon which interest commences for the repayment ordered in her order of March 26, 2003.
The matter is remitted to the arbitrator to determine whether State Farm is entitled to an assessment of expenses with respect to her order of March 26, 2003.
The parties may contact me within 30 days of this decision if they are unable to agree on appeal expenses.

September 12, 2005

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

State Farm appeals the arbitrator’s order of March 2, 2005, provided by letter, in which she declined to consider State Farm’s request to amend her earlier order of March 26, 2003.

II. BACKGROUND

In her decision of March 26, 2003, the arbitrator denied Mr. Rovella’s claims. She awarded State Farm repayment in the amount of $33,997.72, plus interest, because of Mr. Rovella’s wilful misrepresentation. She also ordered Mr. Rovella to pay State Farm’s expenses of the hearing.

Section 47 of the SABS-1996¹ provides for repayment of and interest on overpaid benefits as a result of, inter alia, wilful misrepresentation [47(1)]. The insurer must give notice of the amount required to be repaid [47(2)(a)], but in the case of wilful misrepresentation the repayment amount is not limited to payments made within 12 months of the notice [47(3), (4)]. The insurer may charge interest on the repayable amount from the fifteenth day after notice is given at the bank rate in effect on that date [47(6), 47(7)].

In her reasons for decision, the arbitrator determined the notice date: “On September 17, 1999, [Mr. Rovella] was advised that State Farm was asking for a repayment indicating that they disputed the quantum of his income replacement benefit. . . . [B]ecause of the requirements of subsection 47(2)(b)² of the Schedule it is now bound by the amount it had stated in its letter to Mr. Rovella.”

The arbitrator ordered:

Mr. Rovella shall pay State Farm $33,997.72 plus interest pursuant to section 47 of the Schedule.
Mr. Rovella shall pay State Farm its reasonable expenses of the arbitration pursuant to subsection 282(11) of the Insurance Act.

The interest order does not set out the rate of interest or the date from which it is to be calculated, and the expenses order does not establish the amount of expenses.

Pursuant to s. 19 of the Statutory Powers Procedure Act (“SPPA”), R.S.O. 1990, c. S.22, orders are enforced through the courts by filing a certified copy of the order, which is then deemed to be an order of the court and enforceable as such [19(1)] through the sheriff [19(3)]. These provisions are echoed in Rule 66 of the Dispute Resolution Practice Code, Fourth Edition (the “Code”), which provides that on request the Director will provide a party with a certified copy of an order [R. 66.1], which may then be filed in the Ontario Superior Court of Justice and “be enforced by the Court in the same manner as an order of that Court” [R. 66.2]. State Farm obtained a copy of the order, certified on October 27, 2003. The copy before me was filed with a court on July 27, 2004, according to the court’s date stamp.

On October 12, 2004, counsel for State Farm, Chet Wydrzynski, wrote to the case administrator at the Commission,³ seeking to have the order amended

to include particulars, specifically relating to the amount of costs owed, and the rate of interest. This is necessary because we are attempting to have a write of seizure and sale entered, but the court will not do this as the order does not mention particular numbers.

The letter included information relating to the particular numbers. Regarding the rate of interest:

The interest rate charged is the bank rate of the “fifteenth day after notice is given.” Fifteen days after September 17, 1999, was October 2, 1999, this was a Saturday. The bank rate on Monday, October 4, 1999 was 4.75%. Included with this letter is a print-out from the Bank of Canada website detailing the bank rate for the week of October 1, 1999.

Therefore, State Farm asked that paragraph 2 of the arbitrator’s order be amended to read:

Mr. Rovella shall pay State Farm $33,997.72 plus interest from October 4, 1999, at 4.75%

Regarding expenses, counsel sought an amendment of the expenses order to reflect expenses fixed at $10,000, on the grounds that this was “reasonable amount,” since his firm had billed State Farm over $20,000 in fees. The letter concluded: “Please contact the writer if there is anything else we need to do to have this order amended, or if you disagree with anything written in this correspondence.”

On November 4, 2004, the arbitrator advised Mr. Wydrzynski through the case administrator that pursuant to Rule 79.2 of the Code State Farm must make an application for an assessment of expenses if Mr. Rovella did not agree to the amount requested by State Farm. In light of the provision in Rule 1.1 that “[t]hese Rules will be broadly interpreted to produce the most just, quickest and least expensive resolution of the dispute” and in Rule 1.3 that “[a] defect in form or other technical breach will not make a proceeding invalid,” State Farm’s actions could have been interpreted as an application for an assessment of expenses. Aside from that, the arbitrator provided no guidance on the issue of amending the interest order.

State Farm then delivered an Application for Variation/Revocation on January 19, 2005, seeking that the interest and expenses sections of the order be varied.

By letter dated February 3, 2005, the Director of Arbitrations wrote to Mr. Wydrzynski and Mr. Rovella, noting the receipt by the Commission of the Application, and stating:

I am not convinced that a formal application for variation/revocation is required in these circumstances. The parties to an arbitration are entitled to an order that specifies the amount owing and, if interest is payable, the start date and rate of interest. Therefore, rather than open a new variation/revocation file, I will bring State Farm’s request to the Arbitrator’s attention and ask her to respond. If, for any reason, the Arbitrator concludes that she is unable to clarify her order, State Farm can bring the matter back to me.

However, in her letter order of March 2, 2005, the arbitrator again did not address the interest issue. Instead, she summarized Rule 79.2 of the Code and concluded:

Accordingly, I find that the proper procedure that State Farm should have followed is outlined in Rule 79 of the Dispute Resolution Practice Code and for this reason I decline to consider the request to amend my order of March 26, 2003.

III. ANALYSIS

A. Interest

Pursuant to s. 17(2) of the SPPA,

[a] tribunal that makes an order for the payment of money shall set out in the order the principal sum, and if interest is payable, the rate of interest and the date from which it is to be calculated. [Emphasis added.]

The arbitrator’s order did not contain the start date and rate of interest. Therefore, the order is incomplete, and she was — and remains — seized of it. She committed an error of law in not issuing an enforceable order with respect to interest. As to the content of the order, the start date is set out in her reasons, and I could amend the order to reflect that fact. However, the arbitrator still has to make a finding on whether the interest rate proposed by State Farm is correct. In addition, Mr. Rovella has raised a delay argument that must be adjudicated.⁴

Accordingly, the matter is remitted to the arbitrator to determine the start date and rate of interest.

B. Expenses

The arbitrator provided no reasons for her refusal to consider an assessment of expenses. Simply stating that “the proper procedure that State Farm should have followed is outlined in Rule 79” does not provide a reason for the refusal, in the absence of evidence and a finding as to how State Farm failed to follow Rule 79. In that regard, State Farm should have had an opportunity to present evidence on what steps it took to follow the Rule and whether there were mitigating circumstances if it did breach the Rule.

By providing no reasons for refusing to consider the amendment, the arbitrator breached Rule 65.3, which provides: “An order which finally decides the issues in dispute will be supported by written reasons.” This rule reflects the common law duty of procedural fairness that requires the provision of a written explanation for a decision, as set out in Baker v. Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), [1999] 2 S.C.R. 817.

The arbitrator may have concluded that State Farm failed to meet the initial deadline set out in Rule 79.2(a). Rule 79.2 applies where an adjudicator has issued an order of expenses to be paid and the parties cannot agree on the amounts to be paid under that order. Either party may request, in writing, an appointment before an adjudicator, provided that certain criteria are met. The first criterion, set out in Rule 79.2(a), is that, within 30 days from the date of the order awarding expenses, the party awarded expenses provide the other party with an account describing each of the expenses claimed, services received and the costs. If so, State Farm was provided no opportunity to provide evidence on what steps it took and whether it did meet that criterion.⁵ However, in the absence of any reasons beyond the general statement made by the arbitrator, it is impossible to know if this is the criterion the arbitrator considered.

Furthermore, if this is the relevant criterion, the arbitrator failed to consider the discretionary power she has under Rule 81.1(a) to “set aside any time limit set out in these Rules for doing any act, serving any notice, filing any document or holding any hearing” on such terms as she considers just. Arbitrators have used that rule to forgive the failure to meet the 30-day deadline where, for instance, the party awarded expenses was occupied preparing a Response to Appeal and assumed that the question of expenses would be dealt with in the context of the entire appeal: Chafe-Moote and Prudential of America General Insurance Company (Canada), (FSCO A99-000016, June 15, 2000).

It may be that the arbitrator felt she should not exercise her discretion in State Farm’s favour in the circumstances. For instance, Mr. Rovella submits that the arbitrator applied a kind of “rough justice,” in that she had ruled against him in not allowing an adjournment for him to obtain an accountant’s report:

By allowing State Farm to ask that Rule 39⁶ of the Code regarding time issues be enforced at the hearing and by allowing State Farm to not follow Rule 79 of the Code regarding time issues would be unjust and unfair to say the least.

Again, however, the arbitrator provides nothing to indicate whether or not she considered exercising her discretion and, if she did, why she refused to do so. If the arbitrator was considering the other criteria applicable to the insurer before an assessment of expenses can be heard, those have now been met. As part of the appeal process, State Farm has served copies of its supporting documentation pursuant to Rule 79.2(c) (State Farm is seeking only a simplified assessment, claiming mostly counsel and clerk time, photocopying and the cost of one expert’s report). State Farm has also filed those materials, and its actions since the fall of 2004 can be taken as a written request for an assessment of expenses, pursuant to Rule 79.2(d).

Accordingly, the matter is remitted to the arbitrator for a determination of whether State Farm is entitled to an assessment of expenses.

IV. EXPENSES

Appeal expenses were not addressed at the appeal hearing. The parties are encouraged to resolve the issue, but if they are unable to do so, the matter may be determined in accordance with Rule 79 of the Code.